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What is Volume?
The total number of shares traded during a given period is referred to as volume. Generally, this period is one day. So you can say that the volume is the number of shares traded during a day.
There are so many synonyms of the term volume which people use and some of them are stock volume, trading volume etc.
Whenever you see volume over any website or in any application, it shows you the cumulative volume which means the quantity of the shares traded till the time you’re watching it and not the volume at that particular moment because it is quite impossible for any entity or also for the stock exchange to tell the volume of a stock at any particular time as there is a lot of transaction going on in the market at every second of the day.
In the above image. time is 3:59 PM (in the upper yellow box) which means the stock market was get closed on that day and you can see there was still volume shown in the lower yellow box which signifies that the volume shown on the websites isn’t the current volume, they are the cumulative volume.
Misconception regarding volume
Let’s say you’ve 200 shares of reliance industries and you’ve decided to sell those shares at @2360 rs. and on the other hand, I want the same no. of shares at the same price i.e. 2360 rs.
So the trade will get executed and here you and I together have created a volume of 200 shares. Many people tend to assume volume count as 400 (200 buys + 200 sells), which is not the right way to look at volumes.
Buyer and seller both participate in one transaction and one needs to focus on the no. of shares that changed hands in that transaction to get the volume.
What is Relative Volume(RVOL)?
It tells us about the no. of times the given stock is trading currently than it trades usually.
For instance, let’s say today’s reliance shares’ relative volume is 2.5 then we can interpret this as “currently the reliance share is trading 2.5 times than it trades usually or on normal days”.
Volume Analysis
It is an indicator. which is a type of technical analysis, which helps a trader to determine the price of a stock.
Value investors or long-term investors do not pay attention to the volume of the stock that they’re analyzing. These types of investors are more into fundamental analysis and volume analysis doesn’t fall into it.
1. Price and Volume relation
This relation between the aforesaid terms isn’t like that price and volume are directly proportional or indirectly proportional to each other.
So, understand this relation in the following manner:
- More sellers than buyers.
- Supply > Demand
- Bearish trend
- Loss-making stock
- More buyers than sellers
- Supply < Demand
- Bullish trend
- Profit-making stock
1.3 Volume is low:
Two situations are possible in this case:
- The share price of that stock is way too high so that no one (majorly retail investors) aren’t able to invest in that stock.
- The stock isn’t worth investment i.e. it could be penny stock.
2. Volume and Liquidity relation
Volume ∝ Liquidity
• High volume » High liquidity
• Low volume » Low liquidity
3. Significance of Volume
The analysis which we do under this category is just to know whether the price moved was fair or not.
The higher the volume during a price move, the more significant the move will be and vice versa.
For instance, let’s say the share price of a stock moved from Rs.100 to Rs.150 but the volume of the stock didn’t change too much.
What does it signify?
Doesn’t it mean that there were not so many people involved in that trade and the involved people are trying to manipulate the price of that stock?
Conclusion
Share market volume is just the quantity of shares that get traded during a day or in a particular period. And apart from shares, you can measure volume for any other financial instruments like bonds, commodities, derivatives and also for indices.
Many people do have doubt that “what is the good volume for stocks?” and there isn’t any straight answer to this question but one must check the significance of the volume of whatever stock he/she is thinking of going to invest in.
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